Camilo Granados

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Welcome

I am an Assistant Professor of Economics in the School of Economics, Political and Policy Sciences (EPPS) at the University of Texas at Dallas (UTD). I obtained a Ph.D. in Economics at the University of Washington (UW) in 2021. My main areas of research are International Macroeconomics and International Finance. I am also interested in applied econometrics and Macroeconomics.

Curriculum Vitae (PDF)

• Click title to see abstract.

Working Papers

Productivity and Wedges: Economic Convergence and the Real Exchange Rate
(with Michael B. Devereux and Ippei Fujiwara )

Abstract
This paper explores the relationship between economic growth and the real exchange rate, specifically focusing on the convergence in price levels in Eastern European countries. While these countries have had significant convergence in GDP per capita (relative to the EU average) since the 1990s, convergence in real exchange rates for these countries stalled after the EU crisis. Using a standard theoretical framework, we estimate the main drivers of real exchange rates and show that a combination of productivity growth (Balassa-Samuelson effects) and labor market distortions help explain real exchange rate trends. We develop a structural two-country model that provides a rich decomposition of the long run determinants of the real exchange rate. Simulations based on observed sectoral productivities and labor market wedges show that the model can accurately account for the historical path of Eastern European real exchange rates, both before and after the EU crisis.

Abstract

This paper explores the relationship between economic growth and the real exchange rate, specifically focusing on the convergence in price levels in Eastern European countries. While these countries have had significant convergence in GDP per capita (relative to the EU average) since the 1990s, convergence in real exchange rates for these countries stalled after the EU crisis. Using a standard theoretical framework, we estimate the main drivers of real exchange rates and show that a combination of productivity growth (Balassa-Samuelson effects) and labor market distortions help explain real exchange rate trends. We develop a structural two-country model that provides a rich decomposition of the long run determinants of the real exchange rate. Simulations based on observed sectoral productivities and labor market wedges show that the model can accurately account for the historical path of Eastern European real exchange rates, both before and after the EU crisis.

[Paper]

Strategic Macroprudential Policymaking: When Does Cooperation Pay Off?

Abstract
I study whether emerging economies can navigate the global financial cycle more successfully by resorting to internationally coordinated macroprudential policies. For this, I set an open economy model with banking frictions in a center-periphery environment with multiple emerging economies. Then, I evaluate the performance of several policy arrangements that differ by the degree and type of cooperation. I find that cooperation can generate welfare gains but is not always beneficial relative to nationally-oriented policies. Instead, only regimes where the financial center acts cooperatively generate welfare gains. When present, two mechanisms generate the gains: a cancellation effect of national incentives to manipulate the global interest rate and a motive for steering capital flows to emerging economies. The first mechanism eliminates unnecessary policy fluctuations and the second helps prevent capital retrenchments in the center. These effects can be quantitatively relevant as good cooperation regimes can reduce the welfare losses induced by a financial friction between 60% and 80%.

Abstract

I study whether emerging economies can navigate the global financial cycle more successfully by resorting to internationally coordinated macroprudential policies. For this, I set an open economy model with banking frictions in a center-periphery environment with multiple emerging economies. Then, I evaluate the performance of several policy arrangements that differ by the degree and type of cooperation. I find that cooperation can generate welfare gains but is not always beneficial relative to nationally-oriented policies. Instead, only regimes where the financial center acts cooperatively generate welfare gains. When present, two mechanisms generate the gains: a cancellation effect of national incentives to manipulate the global interest rate and a motive for steering capital flows to emerging economies. The first mechanism eliminates unnecessary policy fluctuations and the second helps prevent capital retrenchments in the center. These effects can be quantitatively relevant as good cooperation regimes can reduce the welfare losses induced by a financial friction between 60% and 80%.

[Paper] / [Slides (30 min)] / [Video (until 21:48)]

Macroprudential Policy Interactions: What has Changed Since the Global Financial Crisis?

Abstract
We study the empirical international policy interactions between macroprudential regulators with the objective of determining whether these adjust their policies with cross-border strategic considerations in mind. For that, we analyze the policy-to-policy interactions for a panel of 65 economies using a local projection approach. Our findings suggest that domestic regulators do react in response to foreign policy changes positively and on average will tighten their domestic tools in response to stricter foreign financial regulations (tightenings). We apply additional specifications to disentangle the average policy effect and obtain that: (i) regulators react mainly to policy changes in advanced economies, (ii) the reaction to foreign policy changes is stronger in advanced economies, (iii) reactions to emerging regulations are less important, but can exist at the regional level (emerging-to-emerging). Additionally, results by type of foreign policy instruments suggest that, other than the typical positive response in our baseline, there can also be occasional loosening adjustments in emerging economies after foreign policy tightenings of some prudential instruments. Our results point to the existence of important policy interactions that can create the scope for coordinated policy frameworks aimed to mitigate inefficiencies in the level of macroprudential interventionism.

Abstract

We study the empirical international policy interactions between macroprudential regulators with the objective of determining whether these adjust their policies with cross-border strategic considerations in mind. For that, we analyze the policy-to-policy interactions for a panel of 65 economies using a local projection approach. Our findings suggest that domestic regulators do react in response to foreign policy changes positively and on average will tighten their domestic tools in response to stricter foreign financial regulations (tightenings). We apply additional specifications to disentangle the average policy effect and obtain that: (i) regulators react mainly to policy changes in advanced economies, (ii) the reaction to foreign policy changes is stronger in advanced economies, (iii) reactions to emerging regulations are less important, but can exist at the regional level (emerging-to-emerging). Additionally, results by type of foreign policy instruments suggest that, other than the typical positive response in our baseline, there can also be occasional loosening adjustments in emerging economies after foreign policy tightenings of some prudential instruments. Our results point to the existence of important policy interactions that can create the scope for coordinated policy frameworks aimed to mitigate inefficiencies in the level of macroprudential interventionism.

[Paper]

Macroprudential Policy Leakages in Open Economies: A Multiperipheral Approach.
R&R at Macroeconomic Dynamics

Abstract
To understand the international nature of the macroprudential policy and the potential cross-border regulatory leakages these imply we develop a three-country center-periphery framework with financial frictions and limited financial intermediation in emerging economies. Each country has a macroprudential instrument to smooth credit spread distortions; however, the banking regulations can leak to other economies and be subject to costs. Our results show the presence of cross-border regulation spillovers that increase with the extent of financial frictions, that are driven by the capacity of the regulation to limit aggregate intermediation, and that can be magnified if policymakers are forward-looking. We discuss the policy implications of the resulting macroprudential interdependence and the potential scope for policy design that improves the management of the trade-off between mitigating the financial frictions and curtailing intermediation.

Abstract

To understand the international nature of the macroprudential policy and the potential cross-border regulatory leakages these imply we develop a three-country center-periphery framework with financial frictions and limited financial intermediation in emerging economies. Each country has a macroprudential instrument to smooth credit spread distortions; however, the banking regulations can leak to other economies and be subject to costs. Our results show the presence of cross-border regulation spillovers that increase with the extent of financial frictions, that are driven by the capacity of the regulation to limit aggregate intermediation, and that can be magnified if policymakers are forward-looking. We discuss the policy implications of the resulting macroprudential interdependence and the potential scope for policy design that improves the management of the trade-off between mitigating the financial frictions and curtailing intermediation.

[Paper]

CIP Deviations, Commodity Markets Shocks, and the Role of Macroprudential Policy
(with Julián Fernández)

Abstract
We analyze Covered Interest Parity (CIP) deviations across advanced and emerging economies post-crisis, using Libor and commercial paper data. Employing a lag-augmented local-projection framework, we leverage identified demand- and supply-driven commodity shocks and gauge their interaction with macroprudential tightenings. We find that a policy tightening alone deepens CIP deviations by 1–2 basis points in advanced economies and 15–20 in emerging markets. Demand shocks raise deviations by 2–4 basis points in advanced economies but reduce them by 5–10 in emerging markets, while supply shocks have more uniform effects. Macroprudential policy partially offsets demand-shock impacts but shows no interaction with other shocks. These results highlight the state-dependent effectiveness of macroprudential tools and the need for tailored regulatory design to manage cross-border funding risks.

Abstract

We analyze Covered Interest Parity (CIP) deviations across advanced and emerging economies post-crisis, using Libor and commercial paper data. Employing a lag-augmented local-projection framework, we leverage identified demand- and supply-driven commodity shocks and gauge their interaction with macroprudential tightenings. We find that a policy tightening alone deepens CIP deviations by 1–2 basis points in advanced economies and 15–20 in emerging markets. Demand shocks raise deviations by 2–4 basis points in advanced economies but reduce them by 5–10 in emerging markets, while supply shocks have more uniform effects. Macroprudential policy partially offsets demand-shock impacts but shows no interaction with other shocks. These results highlight the state-dependent effectiveness of macroprudential tools and the need for tailored regulatory design to manage cross-border funding risks.

[Paper]

Publications

Terms of Trade Fluctuations and Sudden Stops in A Small Open Economy
(with Andrew Faris)
Review of International Economics. August 2025.

Abstract
We examine how terms-of-trade fluctuations can shape the vulnerability of emerging economies to self-fulfilling financial crises and sudden stops. Building on a small open economy endowment model with importables, exportables, and nontradables, we allow the borrowing constraint to depend explicitly on the relative price of exports. This channel links terms-of-trade movements to the economy’s collateral capacity. We find that while terms-of-trade shocks may play a limited role in routine business-cycle dynamics, their importance intensifies under stressed conditions. Favorable terms-of-trade can deter the emergence of multiple equilibria and prevent expectation-driven crises. Our findings contribute to understanding the high relevance associated to the terms-of-trade in emerging economies, even in presence of the limited evidence of their importance as a fundamental driver during normal times.

Abstract

We examine how terms-of-trade fluctuations can shape the vulnerability of emerging economies to self-fulfilling financial crises and sudden stops. Building on a small open economy endowment model with importables, exportables, and nontradables, we allow the borrowing constraint to depend explicitly on the relative price of exports. This channel links terms-of-trade movements to the economy’s collateral capacity. We find that while terms-of-trade shocks may play a limited role in routine business-cycle dynamics, their importance intensifies under stressed conditions. Favorable terms-of-trade can deter the emergence of multiple equilibria and prevent expectation-driven crises. Our findings contribute to understanding the high relevance associated to the terms-of-trade in emerging economies, even in presence of the limited evidence of their importance as a fundamental driver during normal times.

[Publisher][Paper]

Dissecting Capital Flows: Do Capital Controls Shield Against Foreign Shocks?
(with Kyongjun Kwak )
Journal of Financial Stability. Volume 79, August 2025.

Abstract
To rationalize the increased use of capital flows regulations in recent times, we study the capacity of capital flow management measures (CFMs) to insulate an economy from external shocks. We examine the extent to which CFMs mitigate the effects of US monetary shocks and whether measuring this mitigation at the net or gross level of flows matters. Our analysis is carried out for a panel of emerging market economies and for different disaggregations of the flows. Our results indicate that the level of aggregation matters for evaluating the effects of CFMs, and that analyses with excessively aggregated flows or with only net measures may lead to biases in assessing the insulation features of the CFMs. Furthermore, CFMs have insulation properties that mitigate capital repatriations; however, these are mostly related to risky portfolio and banking flows.

Abstract

To rationalize the increased use of capital flows regulations in recent times, we study the capacity of capital flow management measures (CFMs) to insulate an economy from external shocks. We examine the extent to which CFMs mitigate the effects of US monetary shocks and whether measuring this mitigation at the net or gross level of flows matters. Our analysis is carried out for a panel of emerging market economies and for different disaggregations of the flows. Our results indicate that the level of aggregation matters for evaluating the effects of CFMs, and that analyses with excessively aggregated flows or with only net measures may lead to biases in assessing the insulation features of the CFMs. Furthermore, CFMs have insulation properties that mitigate capital repatriations; however, these are mostly related to risky portfolio and banking flows.

[Publisher][Working Paper]

Output Gap Measurement after COVID for Colombia: Lessons from a Permanent-Transitory Approach
(with Daniel Parra)
Latin American Journal of Central Banking. July 2025.

Abstract
We estimate the output gap for the Colombian economy explicitly accounting for the COVID-19 period. Our estimates reveal a significant 20% decline in the output gap but with a faster recovery compared to previous crises. Our empirical strategy follows a two-stage Bayesian vector autoregressive (BSVAR) model where i) a scaling factor in the reduced form of VAR is used to model extreme data, such as those observed around the COVID-19 period, and ii) permanent and transitory shocks are structurally identified. As a result, we obtain that a single structural shock explains the potential GDP, while the remaining shocks within the model are transitory in nature and thus can be used to estimate the output gap. We elaborate on the relative strengths of our method for drawing policy lessons and show that the improved approximation accuracy of our method allows for inflation forecasting gains through the use of Phillips curves, as well as for rule-based policy diagnostics that align more closely with the observed behavior of the Central Bank.

Abstract

We estimate the output gap for the Colombian economy explicitly accounting for the COVID-19 period. Our estimates reveal a significant 20% decline in the output gap but with a faster recovery compared to previous crises. Our empirical strategy follows a two-stage Bayesian vector autoregressive (BSVAR) model where i) a scaling factor in the reduced form of VAR is used to model extreme data, such as those observed around the COVID-19 period, and ii) permanent and transitory shocks are structurally identified. As a result, we obtain that a single structural shock explains the potential GDP, while the remaining shocks within the model are transitory in nature and thus can be used to estimate the output gap. We elaborate on the relative strengths of our method for drawing policy lessons and show that the improved approximation accuracy of our method allows for inflation forecasting gains through the use of Phillips curves, as well as for rule-based policy diagnostics that align more closely with the observed behavior of the Central Bank.

[Publisher][Working Paper]

Exchange Rate Dynamics and the Central Bank’s Balance Sheet
(with Guillermo Gallacher and Janelle Mann)
Journal of International Money and Finance. Volume 148, October 2024.

Abstract
Are nominal exchange rate variations linked to the central bank’s balance sheet, and in particular to remunerated domestic liabilities? We use two metrics of implied exchange rates using central bank balance sheet data: one is a traditional metric that includes the monetary base, and the other adds remunerated domestic liabilities. We first estimate a VAR model to investigate the endogenous interactions between central bank balance sheet components for a set of seven Latin American countries for the 2006:01-2019:12 period. Then, we use threshold cointegration techniques to compare these two metrics of the implied exchange rate with the spot (observed) exchange rate. We find that the implied exchange rates and the spot exchange rate are cointegrated for most of the set of Latin American countries. We also find that for a subset of our sample, the spot exchange rate adjusts to the metric that adds remunerated domestic liabilities. We conclude the remunerated domestic liabilities matter for understanding exchange rate dynamics and explore a simple theoretical setup to better understand the mechanism.

Abstract

Are nominal exchange rate variations linked to the central bank’s balance sheet, and in particular to remunerated domestic liabilities? We use two metrics of implied exchange rates using central bank balance sheet data: one is a traditional metric that includes the monetary base, and the other adds remunerated domestic liabilities. We first estimate a VAR model to investigate the endogenous interactions between central bank balance sheet components for a set of seven Latin American countries for the 2006:01-2019:12 period. Then, we use threshold cointegration techniques to compare these two metrics of the implied exchange rate with the spot (observed) exchange rate. We find that the implied exchange rates and the spot exchange rate are cointegrated for most of the set of Latin American countries. We also find that for a subset of our sample, the spot exchange rate adjusts to the metric that adds remunerated domestic liabilities. We conclude the remunerated domestic liabilities matter for understanding exchange rate dynamics and explore a simple theoretical setup to better understand the mechanism.

[Publisher][Working Paper]

Estimating Potential Output After Covid: How to Address Unpredecented Macroeconomic Variations
(with Daniel Parra)
Economic Modelling. Volume 135, June 2024.

Abstract
We examine the importance of adjusting output gap frameworks during large-scale disruptions, with a focus on the COVID-19 pandemic. Such adaptation can be crucial given the impact of such episodes on the reliability of time-series models and the inherent need for stability in output gap methods. We employ a Bayesian Structural Vector Autoregression model, identified through a permanent- transitory decomposition, and enhance it by scaling residuals around the pandemic period. Our analysis, conducted for seven developed economies, suggests that adjusting the model around the pandemic’s onset leads to improved estimates and reduced uncertainty. This approach surpasses traditional filters and other complex models lacking pandemic-timed adjustments. Notably, omitting such adjustments can result in biased and unstable gap estimates, potentially causing rapid gap recoveries post-downturns or increased volatility. Our findings underscore the importance of prompt reassessments of output gap frameworks during unprecedented global events, focusing on their stability and uncertainty.

Abstract

We examine the importance of adjusting output gap frameworks during large-scale disruptions, with a focus on the COVID-19 pandemic. Such adaptation can be crucial given the impact of such episodes on the reliability of time-series models and the inherent need for stability in output gap methods. We employ a Bayesian Structural Vector Autoregression model, identified through a permanent- transitory decomposition, and enhance it by scaling residuals around the pandemic period. Our analysis, conducted for seven developed economies, suggests that adjusting the model around the pandemic’s onset leads to improved estimates and reduced uncertainty. This approach surpasses traditional filters and other complex models lacking pandemic-timed adjustments. Notably, omitting such adjustments can result in biased and unstable gap estimates, potentially causing rapid gap recoveries post-downturns or increased volatility. Our findings underscore the importance of prompt reassessments of output gap frameworks during unprecedented global events, focusing on their stability and uncertainty.

[Publisher][Working Paper]

Work in Progress

Prices Stability and Macroeconomic Volatility Spillovers in Latin America

Abstract
In order to determine the presence of volatility spillovers among macroeconomic variables a Vector Autorregresive (VAR) model with multivariate heteroskedasticity effects is carried out for five countries in Latin America. The variables considered are real activity, price level, interest rate, and exchange rate. The results indicate that there are few within country volatility spillovers. Those that are significant are usually sizable and point to the relevance of international shocks in spreading volatility to other countries rather than local effects. Finally, we obtain that the volatility of inflation is not generally affected by the uncertainty shocks in the exchange rate, this result is noticeable as the price instability effects of the exchange rate fluctuations is usually the justification behind exchange rate intervention programs in these economies.

Abstract

In order to determine the presence of volatility spillovers among macroeconomic variables a Vector Autorregresive (VAR) model with multivariate heteroskedasticity effects is carried out for five countries in Latin America. The variables considered are real activity, price level, interest rate, and exchange rate. The results indicate that there are few within country volatility spillovers. Those that are significant are usually sizable and point to the relevance of international shocks in spreading volatility to other countries rather than local effects. Finally, we obtain that the volatility of inflation is not generally affected by the uncertainty shocks in the exchange rate, this result is noticeable as the price instability effects of the exchange rate fluctuations is usually the justification behind exchange rate intervention programs in these economies.

[Paper]

Enhancing Economic Resiliency Through Prudential Cooperation

Abstract
I analyze the short-run resilience and financial stability properties of an array of cooperative policy regimes relative to nationally-oriented regulations. I show that countries that rely on internationally coordinated policies are more insulated to the negative effects of international financial downturns like the global financial crisis. Additionally, cooperative policies allow countries to increase the countercyclicality of the prudential policies, to lower the required level of interventionism to deal with crises, and to mitigate the deleveraging processes after a financial crisis. All of these properties imply that smoother and less volatile policy responses can be compatible with improved economic performance after external shocks which makes a case for the implementation of coordinated policy schemes that go beyond the potential welfare gains involved in these initiatives.

Abstract

I analyze the short-run resilience and financial stability properties of an array of cooperative policy regimes relative to nationally-oriented regulations. I show that countries that rely on internationally coordinated policies are more insulated to the negative effects of international financial downturns like the global financial crisis. Additionally, cooperative policies allow countries to increase the countercyclicality of the prudential policies, to lower the required level of interventionism to deal with crises, and to mitigate the deleveraging processes after a financial crisis. All of these properties imply that smoother and less volatile policy responses can be compatible with improved economic performance after external shocks which makes a case for the implementation of coordinated policy schemes that go beyond the potential welfare gains involved in these initiatives.

[Paper]

Financial Regulation and Income Inequality
(with Jasmine Jiang)